Press release

Spok Reports First-Quarter 2020 Operating Results; Wireless Trends Continue to Improve and Year-Over-Year Improvements in Software Revenue Bookings

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Spok Holdings, Inc. (NASDAQ: SPOK), a global leader in healthcare communications, today announced operating results for the first quarter ended March 31, 2020. In addition, the Company’s Board of Directors declared a regular quarterly dividend of $0.125 per share, payable on June 24, 2020, to stockholders of record on May 25, 2020.

Key First-Quarter Operating Highlights:

  • Software bookings in the first quarter totaled $15.6 million, up from software bookings of $14.7 million in the prior year quarter. First quarter 2020 bookings included $5.9 million of operations bookings and $9.7 million of maintenance renewals, compared to $6.0 million and $8.7 million, respectively in the first quarter of 2019.
  • First quarter 2020 software revenue of $15.9 million, compared to software revenue of $19.2 million in the prior year quarter. Included in first quarter software revenue was $6.2 million of operations revenue and $9.7 million in maintenance revenue, compared to $9.0 million in operations revenue and $10.2 million in maintenance revenue in the first quarter of 2019.
  • The revenue renewal rate for software maintenance in the first quarter of 2020 continued to exceed 99 percent.
  • The quarterly rate of paging unit erosion was 1.3 percent in the first quarter of 2020, compared to 1.8 percent in the prior quarter and 1.0 percent in the year-earlier period. Net paging unit losses were 12,000 in the first quarter of 2020, compared to 17,000 in the prior quarter and 10,000 in the first quarter of 2019. Paging units in service at March 31, 2020, totaled 926,000, compared to 982,000 at March 31, 2019.
  • The quarterly rate of wireless revenue erosion was 1.1 percent in the first quarter of 2020, compared to 0.9 percent erosion in the prior quarter and 2.1 percent in the year-earlier quarter.
  • Total paging ARPU (average revenue per unit) was $7.31 in the first quarter of 2020, compared to $7.32 in the year-earlier quarter and $7.33 in the prior quarter.
  • Operating expenses in the first quarter of 2020 totaled $41.4 million, compared to $40.6 million in the prior year quarter. Adjusted operating expenses totaled $40.9 million in the first quarter of 2020, compared to $38.3 million in the year-earlier quarter.
  • Capital expenses were $1.1 million in the first quarter of 2020, compared to $1.3 million in the year-earlier quarter.
  • The number of full-time equivalent employees at March 31, 2020, totaled 620, compared to 591 in the prior year quarter.
  • Capital returned to stockholders in the first quarter of 2020 totaled $2.6 million, in the form of the regular quarterly dividend.
  • The Company’s cash, cash equivalents and short-term investments balance at March 31, 2020, was $72.2 million, compared to $77.3 million at December 31, 2019.

2020 First-Quarter Results:

Consolidated revenue for the first quarter of 2020 under Generally Accepted Accounting Principles (“GAAP”) was $37.3 million compared to $41.8 million in the first quarter of 2019.

 

For the three months ended

(Dollars in thousands)

March 31, 2020

March 31, 2019

Change

(%)

Wireless revenue

 

 

 

Paging revenue

$

 

20,451

 

$

 

21,687

 

(5.7

)%

Product and other revenue

 

935

 

 

923

 

1.3

%

Total wireless revenue

$

 

21,386

 

$

 

22,610

 

(5.4

)%

 

 

 

 

Software revenue

 

 

 

Operations revenue

$

 

6,229

 

$

 

9,009

 

(30.9

)%

Maintenance revenue

 

9,652

 

 

10,145

 

(4.9

)%

Total software revenue

 

15,881

 

 

19,154

 

(17.1

)%

Total revenue

$

 

37,267

 

$

 

41,764

 

(10.8

)%

GAAP net loss for the first quarter of 2020 was $4.5 million, or $0.24 per diluted share, compared to net income of $0.7 million, or $0.04 per diluted share, in the first quarter of 2019.

In the first quarter of 2020, the EBITDA (earnings before interest, taxes, depreciation and amortization) loss totaled $2.0 million. The first quarter 2020 EBITDA loss compares to EBITDA of $3.5 million in the prior year quarter. Spok presents such non-GAAP financial measures in reporting its financial results to provide investors with an additional tool to evaluate the Company’s operating results. Spok believes these non-GAAP financial measures are useful because they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making.

 

For the three months ended

(Dollars in thousands)

March 31, 2020

March 31, 2019

Net (loss) income

$

 

(4,539

)

$

 

742

 

Basic and diluted net (loss) income per share

$

 

(0.24

)

$

 

0.04

 

EBITDA

$

 

(1,962

)

$

 

3,474

 

Management Commentary:

“We were negatively impacted in the first quarter, as the majority of our customer base struggled with the challenges presented by COVID-19,” said Vincent D. Kelly, president and chief executive officer. “We had over 100 meetings scheduled for our annual industry conference, HIMSS, as we were all set to roll out our new cloud native platform, Spok Go®. These meetings included both prospective customers for our Spok Go platform and strategic partners. It has been challenging to get the meetings rescheduled as the world has changed quickly. The pandemic has created an atmosphere of fear and uncertainty and our thoughts and prayers go out to those that have been both directly and indirectly affected by this tragedy. While the situation is fluid and no one is able to predict the duration and severity of this pandemic with a high degree of certainty, let me assure you that, as a company, in the near-term we are positioned to deal with the situation. We have taken the necessary steps to provide for the safety of our customers and employees in order to ensure the continuity of our operations and product development efforts. Spok has a stable revenue base, as approximately 83 percent of our revenues in the first quarter were recurring in nature, coming from either our legacy wireless business or software maintenance contracts. We provide a critical function, which we believe will become even more necessary in this environment, delivering reliable communications and clinical information to care teams when and where it matters most to improve patient outcomes.”

In the first quarter of 2020, Spok returned $2.6 million in capital to stockholders, in the form of its regular quarterly dividend. “We were proud to be able to execute against our capital allocation strategy in the first quarter, which included paying dividends to our stockholders and investing in our product platform and infrastructure,” continued Kelly. “Spok remains committed to paying our regular quarterly dividend. We believe we will be able to achieve this while continuing to support our Spok Care Connect® platform and in the near term investing in the evolution of our cloud-native and integrated communication platform, Spok Go. We are also taking immediate steps to put our operations on a positive free cash flow basis through a combination of furlough and other cost savings initiatives. We are evaluating our investment in development as hospitals represent one of the most impacted sectors of the economy from COVID-19. As part of our evaluation, we are focused on the investment in our cloud-native platform to ensure that shareholders realize the benefit of our investment. We will discuss this more in our outlook and in the coming quarters as we gain greater insight into the impact of COVID-19 on hospitals, including their budgets and perhaps even more importantly, their ability to interact with our sales and professional services teams.”

Business Outlook:

Michael W. Wallace, chief operating officer and chief financial officer, said: “Expense management and strong financial discipline have allowed us to continue to invest in our business. In the first quarter, operating expenses were in-line with the prior quarter, with improvements in several expense categories. Spok’s balance sheet remains strong, with a cash, cash equivalents and short-term investment balance of $72.2 million at March 31, 2020.”

Commenting on the Company’s previously provided financial guidance for 2020, Wallace noted: “Spok has been focused on understanding the impact of the pandemic on our business, particularly given the impact of COVID-19 on the roll-out of our Spok Go software business. Because of the uncertainty surrounding the duration and severity of this crisis and the extremely fluid nature of the situation, we, like many of our peer public companies, believe that it is most prudent to suspend our practice of providing annual guidance for revenues and expenses at this time. We look forward to returning to our normal guidance format after the crisis is over.

Unsolicited Offer from B. Riley:

On March 17, 2020, the Company announced that it had been made aware of a public announcement from B. Riley Financial, Inc. (NASDAQ: RILY) of an unsolicited offer to acquire all of the outstanding shares of Spok’s common stock for $12 per share in cash. “I’d like to take this opportunity to remind stockholders that after careful evaluation the Board of Directors believes that the indication of interest from B. Riley severely undervalues Spok’s business,” said Kelly. “Given our strong cash reserves, our lucrative legacy wireless business, our valuable software business with a highly profitable maintenance base and revenue renewal rates in excess of 99 percent, our Spok Go software platform that is poised for growth and has been developed by Spok with significant customer interest prior to COVID-19 and the value of our deferred tax assets, the Board of Directors does not believe that the unsolicited, conditional and incomplete proposal from B. Riley provides adequate value for our stockholders.

“Further, we believe this is not the time to start a sale process for Spok for the following reasons:

1. M&A activity is severely depressed due to disruptions to the debt and equity markets, strict restrictions on travel and the inability to conduct meaningful due diligence on any proposed transaction, and the significant distractions affecting private equity and potential strategic counterparties due to COVID-19;

2. We are currently unable to predict or quantify the impact of COVID-19 on our business, particularly the impact of COVID-19 on the roll-out of our Spok Go software business;

3. Our customers are large and mid-size hospitals and systems which are focused on patient care during this challenging time, which will affect our near-term financial results;

4. Our Board of Directors continues to believe that, over the long term, our customers will further appreciate the value that our businesses bring to caregivers getting the right message to the right person on the right device at the right time;

5. We are focused on ensuring that our shareholders realize the appropriate value for the investment in Spok Go, despite its rollout being affected by the COVID-19 pandemic;

6. We want to provide feedback today on what we are seeing as our board considers the long-term interests of all our shareholders:

A. Recurring Revenues: We have two very valuable recurring revenue streams in our wireless business and software maintenance contracts, each with significant margins that together represented approximately 83% of revenues in our first quarter;

B. Wireless: Our wireless customer base over the next ten years is expected to generate approximately $597 million in revenue based on existing trends in Units In Service, ARPU and Churn, and we expect this business has a useful life of thirty years;

C. Software: We have a valuable software business that has approximately $72 million of annual revenue, including a high margin maintenance revenue stream of approximately $40 million of annual revenue with a 99% renewal rate; and

D. Cash: We expect a modest investment in the continued refinement of Spok Go for the remainder of 2020 and the continued payment of quarterly dividends, while maintaining a strong cash, cash equivalents and short-term investments balance throughout the year.

7. To date we have spent approximately $55 million developing Spok Go over the last 4.5 years. That is under $3 per share. We have distributed $84.8 million to our shareholders in dividends and share buybacks over the same timeframe. That is over $4 per share. We intend to run the business in a cash flow positive mode for the balance of 2020, as we enact cost savings measures to mitigate the impact of COVID-19 on our businesses. We will watch the market closely as the year progresses for signs it is opening back up for the sale and installation of our software solutions. If we don’t see significant progress in the market opportunity and the ability to continue to generate positive cash flow in the future while still investing in our platform, we can aggressively right size our operations to a cash flow maximization model and revert to paying a consistent regular dividend and year end special dividends with excess cash.

“Finally, on this matter, we believe the indication of interest by B. Riley substantially undervalues our business given (1) our cash and short-term investments on the balance sheet of approximately $3.50 per share at year end after continuing to pay our regular quarterly dividend of $0.125 per share for each quarter of fiscal 2020; (2) our valuable wireless business that remains a critical tool for hospitals and emergency response and that we conservatively expect will generate significant cash flow over a projected useful life of thirty years with a discounted present value, based on prevailing discount rates for the business, of approximately $6.50 per share; (3) a valuable and highly profitable software maintenance business with a $40 million annual recurring revenue stream; and (4) the growth potential of our Spok Go software platform that displayed significant customer interest prior to COVID-19. We will continue to evaluate ways to deliver value to our shareholders from our software business and our investment in Spok Go and as we indicated ‘intend to carefully evaluate good faith proposals from financially capable parties that fairly value Spok and the potential for stockholder value represented by the Company’s long-term investment in its enterprise, cloud-native Spok Go platform.’”

New Directors:

During the first quarter the Company also announced that the Board of Directors appointed Dr. Bobbie Byrne and Christine Cournoyer to join the Board of Directors. Also, Samme Thompson, a director of Spok since 2004, will be stepping down from the Board of Directors at Spok’s annual meeting later this year and will not stand for re-election. “We are excited to have Bobbie and Chris join our Board and look forward to the depth of experience that these software and healthcare IT industry veterans bring. I also want to take this opportunity to say that it has been an honor and privilege to have worked with and learned from Samme over the years. I am grateful to have worked alongside him to realize our mission to become a global leader in healthcare communications,” continued Kelly.

2020 First-Quarter Call and Replay:

Spok plans to host a conference call for investors to discuss its 2020 first-quarter results at 10:00 a.m. ET on Thursday, April 30, 2020. Dial-in numbers for the call are 1-323-794-2551 or 866-575-6539. The pass code for the call is 5307999. A replay of the call will be available from 1:00 p.m. ET on April 30, 2020 until 1:00 p.m. ET on Thursday, May 14, 2020. To listen to the replay, please register at http://tinyurl.com/Spok2020Q1earningsreplay. Please enter the registration information, and you will be given access to the replay.

About Spok

Spok, Inc., a wholly owned subsidiary of Spok Holdings, Inc. (NASDAQ: SPOK), headquartered in Springfield, Virginia, is proud to be a global leader in healthcare communications. We deliver clinical information to care teams when and where it matters most to improve patient outcomes. Top hospitals rely on the Spok Care Connect® and Spok Go® platforms to enhance workflows for clinicians, support administrative compliance, and provide a better experience for patients. Our customers send over 100 million messages each month through their Spok® solutions. Spok is making care collaboration easier. For more information, visit spok.com or follow @spoktweets on Twitter.

Spok is a trademark of Spok Holdings, Inc. Spok Care Connect and Spok Go are trademarks of Spok, Inc.

Safe Harbor Statement under the Private Securities Litigation Reform Act: Statements contained herein or in prior press releases which are not historical fact, such as statements regarding Spok’s future operating and financial performance and statements relating to the unsolicited takeover bid from B. Riley Financial, Inc., are forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties that may cause Spok’s actual results to be materially different from the future results expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially from those expectations include, but are not limited to, declining demand for paging products and services, continued demand for our software products and services, our ability to develop additional software solutions for our customers and manage our development as a global organization, the ability to manage operating expenses, particularly third party consulting services and research and development costs, future capital needs, competitive pricing pressures, competition from traditional paging services, other wireless communications services and other software providers, many of which are substantially larger and have much greater financial and human capital resources, changes in customer purchasing priorities or capital expenditures, government regulation of our products and services and the healthcare and health insurance industries, reliance upon third-party providers for certain equipment and services, unauthorized breaches or failures in cybersecurity measures adopted by us and/or included in our products and services, the effects of changes in accounting policies or practices, adverse economic, political or market conditions in the U.S. and international markets and other factors such as natural disasters, pandemics and outbreaks of contagious diseases and other adverse public health developments, such as coronavirus disease 2019 (COVID-19), the outcome of the unsolicited takeover bid from B. Riley Financial, Inc., as well as other risks described from time to time in our periodic reports and other filings with the Securities and Exchange Commission. Although Spok believes the expectations reflected in the forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. Spok disclaims any intent or obligation to update any forward-looking statements.

SPOK HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (a)

(Unaudited and in thousands except share, per share amounts and ARPU)

 

 

 

 

 

 

 

For the three months ended

 

 

3/31/2020

 

3/31/2019

Revenue:

 

 

 

 

Wireless

 

$

 

21,386

 

 

$

 

22,610

 

Software

 

 

15,881

 

 

 

19,154

 

Total revenue

 

 

37,267

 

 

 

41,764

 

Operating expenses:

 

 

 

 

Cost of revenue

 

 

8,264

 

 

 

7,592

 

Research and development

 

 

5,449

 

 

 

6,167

 

Technology operations

 

 

7,904

 

 

 

7,674

 

Selling and marketing

 

 

6,361

 

 

 

6,110

 

General and administrative

 

 

11,251

 

 

 

10,747

 

Depreciation, amortization and accretion

 

 

2,146

 

 

 

2,359

 

Total operating expenses

 

 

41,375

 

 

 

40,649

 

% of total revenue

 

 

111.0

%

 

 

97.3

%

Operating (loss) income

 

 

(4,108

)

 

 

1,115

 

% of total revenue

 

 

(11.0

)%

 

 

2.7

%

Interest income

 

 

363

 

 

 

449

 

Other expense

 

 

(137

)

 

 

(236

)

(Loss) income before income taxes

 

 

(3,882

)

 

 

1,328

 

Provision for income taxes

 

 

(657

)

 

 

(586

)

Net (loss) income

 

$

 

(4,539

)

 

$

 

742

 

Basic and diluted net (loss) income per common share

 

$

 

(0.24

)

 

$

 

0.04

 

Basic weighted average common shares outstanding

 

 

18,958,716

 

 

 

19,196,970

 

Diluted weighted average common shares outstanding

 

 

18,958,716

 

 

 

19,356,712

 

Cash dividends declared per common share

 

 

0.125

 

 

 

0.125

 

Key statistics:

 

 

 

 

Units in service

 

 

926

 

 

 

982

 

Average revenue per unit (ARPU)

 

$

 

7.31

 

 

$

 

7.32

 

Bookings

 

$

 

15,639

 

 

$

 

14,654

 

Backlog

 

$

 

49,052

 

 

$

 

37,392

 

 

 

 

 

 

(a) Slight variations in totals are due to rounding.

SPOK HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (a)

(Unaudited and in thousands except share, per share amounts and ARPU)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

3/31/2020

 

12/31/2019

 

9/30/2019

 

6/30/2019

 

3/31/2019

 

12/31/2018

 

9/30/2018

 

6/30/2018

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wireless

 

$

21,386

 

 

$

21,615

 

 

$

21,814

 

 

$

22,127

 

 

$

22,610

 

 

$

23,091

 

 

$

23,259

 

 

$

23,658

 

Software

 

 

15,881

 

 

 

17,933

 

 

 

17,639

 

 

 

17,398

 

 

 

19,154

 

 

 

20,165

 

 

 

19,217

 

 

 

16,970

 

Total revenue

 

 

37,267

 

 

 

39,548

 

 

 

39,453

 

 

 

39,525

 

 

 

41,764

 

 

 

43,256

 

 

 

42,476

 

 

 

40,628

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue (b)

 

 

8,264

 

 

 

8,051

 

 

 

7,190

 

 

 

7,239

 

 

 

7,592

 

 

 

8,772

 

 

 

8,141

 

 

 

7,596

 

Research and development

 

 

5,449

 

 

 

7,132

 

 

 

7,437

 

 

 

6,807

 

 

 

6,167

 

 

 

6,618

 

 

 

5,934

 

 

 

6,177

 

Technology operations

 

 

7,904

 

 

 

8,083

 

 

 

7,805

 

 

 

7,866

 

 

 

7,674

 

 

 

8,120

 

 

 

7,787

 

 

 

7,698

 

Selling and marketing

 

 

6,361

 

 

 

5,891

 

 

 

5,595

 

 

 

5,574

 

 

 

6,110

 

 

 

6,275

 

 

 

5,716

 

 

 

6,093

 

General and administrative

 

 

11,251

 

 

 

11,531

 

 

 

11,813

 

 

 

11,696

 

 

 

10,747

 

 

 

10,721

 

 

 

13,673

 

 

 

12,741

 

Depreciation, amortization and accretion

 

 

2,146

 

 

 

2,250

 

 

 

2,305

 

 

 

2,335

 

 

 

2,359

 

 

 

2,601

 

 

 

2,785

 

 

 

2,669

 

Goodwill impairment

 

 

 

 

8,849

 

 

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

 

41,375

 

 

 

51,787

 

 

 

42,145

 

 

 

41,517

 

 

 

40,649

 

 

 

43,107

 

 

 

44,036

 

 

 

42,974

 

% of total revenue

 

 

111.0

%

 

 

130.9

%

 

 

106.8

%

 

 

105.0

%

 

 

97.3

%

 

 

99.7

%

 

 

103.7

%

 

 

105.8

%

Operating (loss) income

 

 

(4,108

)

 

 

(12,239

)

 

 

(2,692

)

 

 

(1,992

)

 

 

1,115

 

 

 

149

 

 

 

(1,560

)

 

 

(2,346

)

% of total revenue

 

 

(11.0

)%

 

 

(30.9

)%

 

 

(6.8

)%

 

 

(5.0

)%

 

 

2.7

%

 

 

0.3

%

 

 

(3.7

)%

 

 

(5.8

)%

Interest income

 

 

363

 

 

 

350

 

 

 

399

 

 

 

452

 

 

 

449

 

 

 

628

 

 

 

384

 

 

 

342

 

Other (expense) income

 

 

(137

)

 

 

206

 

 

 

163

 

 

 

602

 

 

 

(236

)

 

 

(593

)

 

 

(110

)

 

 

102

 

(Loss) income before income taxes

 

 

(3,882

)

 

 

(11,683

)

 

 

(2,130

)

 

 

(938

)

 

 

1,328

 

 

 

184

 

 

 

(1,286

)

 

 

(1,902

)

(Provision for) benefit from income taxes

 

 

(657

)

 

 

2,172

 

 

 

804

 

 

 

268

 

 

 

(586

)

 

 

5

 

 

 

446

 

 

 

730

 

Net (loss) income

 

$

(4,539

)

 

$

(9,511

)

 

$

(1,326

)

 

$

(670

)

 

$

742

 

 

$

189

 

 

$

(840

)

 

$

(1,172

)

Basic and diluted net (loss) income per common share

 

$

(0.24

)

 

$

(0.50

)

 

$

(0.07

)

 

$

(0.03

)

 

$

0.04

 

 

$

0.01

 

 

$

(0.04

)

 

$

(0.06

)

Basic weighted average common shares outstanding

 

 

18,958,716

 

 

 

18,860,020

 

 

 

19,086,811

 

 

 

19,217,866

 

 

 

19,196,970

 

 

 

19,445,401

 

 

 

19,456,149

 

 

 

19,750,941

 

Diluted weighted average common shares outstanding

 

 

18,958,716

 

 

 

18,860,020

 

 

 

19,086,811

 

 

 

19,217,866

 

 

 

19,356,712

 

 

 

19,445,401

 

 

 

19,456,149

 

 

 

19,750,941

 

Key statistics:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Units in service

 

 

926

 

 

 

938

 

 

 

955

 

 

 

977

 

 

 

982

 

 

 

992

 

 

 

999

 

 

 

1,024

 

Average revenue per unit (ARPU)

 

$

7.31

 

 

$

7.33

 

 

$

7.32

 

 

$

7.26

 

 

$

7.32

 

 

$

7.36

 

 

$

7.40

 

 

$

7.41

 

Bookings

 

$

15,639

 

 

$

21,932

 

 

$

20,421

 

 

$

21,334

 

 

$

14,654

 

 

$

23,076

 

 

$

21,580

 

 

$

18,488

 

Backlog

 

$

49,052

 

 

$

50,553

 

 

$

42,604

 

 

$

39,718

 

 

$

37,392

 

 

$

40,422

 

 

$

36,366

 

 

$

36,295

 

(a) Slight variations in totals are due to rounding.

(b) An adjustment of $771 to cost of revenue, identified in the fourth quarter of 2018, has been reflected in this table as an increase to cost of revenue of $166, $196 and $359 in the first, second and third quarters of 2018, respectively. Total operating expenses, operating income (loss), income (loss) before income taxes, Net (loss) income and net (loss) income per share have been adjusted accordingly to reflect these changes.

SPOK HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (a)

(In thousands)

 

 

 

 

 

 

 

3/31/2020

 

12/31/2019

 

 

 

 

 

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

 

42,284

 

 

$

 

47,361

 

Short term investments

 

 

29,906

 

 

 

29,899

 

Accounts receivable, net

 

 

27,216

 

 

 

30,174

 

Prepaid expenses

 

 

8,411

 

 

 

7,517

 

Other current assets

 

 

2,433

 

 

 

2,714

 

Total current assets

 

 

110,250

 

 

 

117,665

 

Non-current assets:

 

 

 

 

Property and equipment, net

 

 

7,655

 

 

 

8,000

 

Operating lease right-of-use assets

 

 

15,591

 

 

 

16,317

 

Capitalized software development

 

 

1,705

 

 

 

Goodwill

 

 

124,182

 

 

 

124,182

 

Intangible assets, net

 

 

2,292

 

 

 

2,917

 

Deferred income tax assets

 

 

47,486

 

 

 

48,983

 

Other non-current assets

 

 

1,641

 

 

 

1,808

 

Total non-current assets

 

 

200,552

 

 

 

202,207

 

Total assets

 

$

 

310,802

 

 

$

 

319,872

 

Liabilities and stockholders’ equity

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

 

$

 

4,003

 

 

$

 

3,615

 

Accrued compensation and benefits

 

 

10,403

 

 

 

11,680

 

Accrued taxes

 

 

1,419

 

 

 

1,529

 

Deferred revenue

 

 

25,265

 

 

 

25,944

 

Operating lease liabilities

 

 

5,236

 

 

 

5,437

 

Other current liabilities

 

 

3,629

 

 

 

2,978

 

Total current liabilities

 

 

49,955

 

 

 

51,183

 

Non-current liabilities:

 

 

 

 

Asset retirement obligations

 

 

6,109

 

 

 

6,061

 

Operating lease liabilities

 

 

10,972

 

 

 

11,575

 

Other non-current liabilities

 

 

986

 

 

 

959

 

Total non-current liabilities

 

 

18,067

 

 

 

18,595

 

Total liabilities

 

 

68,022

 

 

 

69,778

 

Commitments and contingencies

 

 

 

 

Stockholders’ equity:

 

 

 

 

Preferred stock

 

$

 

 

 

$

 

 

Common stock

 

 

2

 

 

 

2

 

Additional paid-in capital

 

 

87,153

 

 

 

86,874

 

Accumulated other comprehensive loss

 

 

(1,821

)

 

 

(1,601

)

Retained earnings

 

 

157,446

 

 

 

164,819

 

Total stockholders’ equity

 

 

242,780

 

 

 

250,094

 

Total liabilities and stockholders’ equity

 

$

 

310,802

 

 

$

 

319,872

 

 

 

 

 

 

(a) Slight variations in totals are due to rounding.

SPOK HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (a)

(Unaudited and in thousands)

 

 

 

 

 

 

 

For the three months ended

 

 

3/31/2020

 

3/31/2019

Operating activities:

 

 

 

 

Net (loss) income

 

$

 

(4,539

)

 

$

 

742

 

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

Depreciation, amortization and accretion

 

 

2,146

 

 

 

2,359

 

Deferred income tax expense

 

 

790

 

 

 

517

 

Stock based compensation

 

 

1,182

 

 

 

528

 

Provisions for doubtful accounts, service credits, and other

 

 

18

 

 

 

374

 

Changes in assets and liabilities:

 

 

 

 

Accounts receivable

 

 

2,441

 

 

 

(4,791

)

Prepaid expenses, inventory and other assets

 

 

964

 

 

 

2,216

 

Accounts payable, accrued liabilities and other

 

 

(1,143

)

 

 

(2,525

)

Deferred revenue

 

 

(542

)

 

 

1,803

 

Net cash provided by operating activities

 

 

1,317

 

 

 

1,223

 

Investing activities:

 

 

 

 

Purchases of property and equipment

 

 

(1,049

)

 

 

(1,287

)

Capitalized software development

 

 

(1,705

)

 

 

Purchase of short-term investments

 

 

(14,888

)

 

 

(14,824

)

Maturity of short-term investments

 

 

15,000

 

 

 

Net cash used in investing activities

 

 

(2,642

)

 

 

(16,111

)

Financing activities:

 

 

 

 

Cash distributions to stockholders

 

 

(2,629

)

 

 

(2,647

)

Purchase of common stock (including commissions)

 

 

 

 

(1,810

)

Purchase of common stock for tax withholding on vested equity awards

 

 

(903

)

 

 

(1,011

)

Net cash used in financing activities

 

 

(3,532

)

 

 

(5,468

)

Effect of exchange rate on cash

 

 

(220

)

 

 

(60

)

Net decrease in cash and cash equivalents

 

 

(5,077

)

 

 

(20,416

)

Cash and cash equivalents, beginning of period

 

 

47,361

 

 

 

83,343

 

Cash and cash equivalents, end of period

 

$

 

42,284

 

 

$

 

62,927

 

Supplemental disclosure:

 

 

 

 

Income taxes paid

 

$

 

 

 

$

 

80

 

 

 

 

 

 

(a) Slight variations in totals are due to rounding.

SPOK HOLDINGS, INC.

CONSOLIDATED REVENUE

SUPPLEMENTAL INFORMATION (a)

(Unaudited and in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

3/31/2020

 

12/31/2019

 

9/30/2019

 

6/30/2019

 

3/31/2019

 

12/31/2018

 

9/30/2018

 

6/30/2018

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Paging

 

$

 

20,451

 

 

$

 

20,826

 

 

$

 

21,212

 

 

$

 

21,342

 

 

$

 

21,687

 

 

$

 

21,997

 

 

$

 

22,442

 

 

$

 

22,824

 

Non-paging

 

 

935

 

 

 

789

 

 

 

602

 

 

 

785

 

 

 

923

 

 

 

1,094

 

 

 

817

 

 

 

834

 

Total wireless revenue

 

$

 

21,386

 

 

$

 

21,615

 

 

$

 

21,814

 

 

$

 

22,127

 

 

$

 

22,610

 

 

$

 

23,091

 

 

$

 

23,259

 

 

$

 

23,658

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

License

 

 

955

 

 

 

1,711

 

 

 

2,723

 

 

 

1,676

 

 

 

2,840

 

 

 

3,496

 

 

 

3,175

 

 

 

1,993

 

Services

 

 

4,549

 

 

 

4,947

 

 

 

4,202

 

 

 

4,835

 

 

 

5,206

 

 

 

5,103

 

 

 

4,555

 

 

 

4,363

 

Equipment

 

 

725

 

 

 

1,125

 

 

 

689

 

 

 

842

 

 

 

963

 

 

 

1,568

 

 

 

1,296

 

 

 

1,107

 

Operations revenue

 

$

 

6,229

 

 

$

 

7,783

 

 

$

 

7,614

 

 

$

 

7,353

 

 

$

 

9,009

 

 

$

 

10,167

 

 

$

 

9,026

 

 

$

 

7,463

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maintenance revenue

 

$

 

9,652

 

 

$

 

10,150

 

 

$

 

10,025

 

 

$

 

10,045

 

 

$

 

10,145

 

 

$

 

9,998

 

 

$

 

10,191

 

 

$

 

9,507

 

Total software revenue

 

$

 

15,881

 

 

$

 

17,933

 

 

$

 

17,639

 

 

$

 

17,398

 

 

$

 

19,154

 

 

$

 

20,165

 

 

$

 

19,217

 

 

$

 

16,970

 

 

Total revenue

 

$

 

37,267

 

 

$

 

39,548

 

 

$

 

39,453

 

 

$

 

39,525

 

 

$

 

41,764

 

 

$

 

43,256

 

 

$

 

42,476

 

 

$

 

40,628

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a) Slight variations in totals are due to rounding.

SPOK HOLDINGS, INC.

CONSOLIDATED OPERATING EXPENSES

SUPPLEMENTAL INFORMATION (a)

(Unaudited and in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

3/31/2020

 

12/31/2019

 

9/30/2019

 

6/30/2019

 

3/31/2019

 

12/31/2018

 

9/30/2018

 

6/30/2018

Cost of revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payroll and related

 

$

5,785

 

 

$

5,222

 

 

$

5,099

 

 

$

4,749

 

 

$

4,931

 

 

$

4,868

 

 

$

4,923

 

 

$

4,853

 

Cost of sales

 

1,940

 

 

2,278

 

 

1,567

 

 

1,900

 

 

2,080

 

 

3,349

 

 

2,623

 

 

2,119

 

Stock-based compensation

 

119

 

 

42

 

 

21

 

 

97

 

 

107

 

 

44

 

 

75

 

 

75

 

Other

 

420

 

 

509

 

 

503

 

 

493

 

 

474

 

 

511

 

 

520

 

 

549

 

Total cost of revenue (b)

 

8,264

 

 

8,051

 

 

7,190

 

 

7,239

 

 

7,592

 

 

8,772

 

 

8,141

 

 

7,596

 

Research and development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payroll and related

 

4,761

 

 

5,056

 

 

5,083

 

 

4,639

 

 

4,263

 

 

4,350

 

 

4,709

 

 

4,506

 

Outside services

 

1,584

 

 

1,742

 

 

2,027

 

 

1,912

 

 

1,745

 

 

2,115

 

 

1,040

 

 

1,481

 

Capitalized software development

 

(1,705

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

236

 

 

113

 

 

102

 

 

84

 

 

11

 

 

5

 

 

71

 

 

90

 

Other

 

573

 

 

221

 

 

225

 

 

172

 

 

148

 

 

148

 

 

114

 

 

100

 

Total research and development

 

5,449

 

 

7,132

 

 

7,437

 

 

6,807

 

 

6,167

 

 

6,618

 

 

5,934

 

 

6,177

 

Technology operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payroll and related

 

2,712

 

 

2,656

 

 

2,823

 

 

2,662

 

 

2,647

 

 

2,616

 

 

2,866

 

 

2,618

 

Site rent

 

3,398

 

 

3,669

 

 

3,269

 

 

3,480

 

 

3,296

 

 

3,432

 

 

3,482

 

 

3,538

 

Telecommunications

 

1,001

 

 

1,026

 

 

1,016

 

 

1,019

 

 

996

 

 

1,021

 

 

950

 

 

935

 

Stock-based compensation

 

43

 

 

32

 

 

30

 

 

30

 

 

30

 

 

24

 

 

24

 

 

24

 

Other

 

750

 

 

700

 

 

667

 

 

675

 

 

705

 

 

1,027

 

 

465

 

 

583

 

Total technology operations

 

7,904

 

 

8,083

 

 

7,805

 

 

7,866

 

 

7,674

 

 

8,120

 

 

7,787

 

 

7,698

 

Selling and marketing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payroll and related

 

3,583

 

 

3,382

 

 

3,524

 

 

3,329

 

 

3,273

 

 

3,047

 

 

3,401

 

 

3,311

 

Commissions

 

1,212

 

 

1,158

 

 

1,114

 

 

1,298

 

 

1,424

 

 

1,759

 

 

1,225

 

 

1,397

 

Stock-based compensation

 

172

 

 

164

 

 

137

 

 

128

 

 

161

 

 

99

 

 

135

 

 

135

 

Advertising and events

 

784

 

 

1,034

 

 

703

 

 

656

 

 

933

 

 

1,236

 

 

857

 

 

996

 

Other

 

610

 

 

153

 

 

117

 

 

163

 

 

319

 

 

134

 

 

98

 

 

254

 

Total selling and marketing

 

6,361

 

 

5,891

 

 

5,595

 

 

5,574

 

 

6,110

 

 

6,275

 

 

5,716

 

 

6,093

 

General and administrative

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payroll and related

 

4,134

 

 

3,974

 

 

4,220

 

 

4,136

 

 

4,041

 

 

4,087

 

 

4,834

 

 

4,340

 

Stock-based compensation

 

612

 

 

770

 

 

674

 

 

690

 

 

219

 

 

860

 

 

1,118

 

 

943

 

Bad debt

 

43

 

 

56

 

 

402

 

 

(96

)

 

308

 

 

303

 

 

513

 

 

279

 

Facility rent, office, and technology costs

 

2,068

 

 

1,952

 

 

2,369

 

 

2,485

 

 

2,294

 

 

2,072

 

 

2,925

 

 

2,323

 

Outside services

 

2,036

 

 

2,350

 

 

2,004

 

 

2,306

 

 

1,776

 

 

2,062

 

 

1,864

 

 

2,443

 

Taxes, licenses and permits

 

859

 

 

1,000

 

 

888

 

 

863

 

 

921

 

 

111

 

 

1,081

 

 

1,024

 

Other

 

1,499

 

 

1,429

 

 

1,256

 

 

1,312

 

 

1,188

 

 

1,226

 

 

1,338

 

 

1,389

 

Total general and administrative

 

11,251

 

 

11,531

 

 

11,813

 

 

11,696

 

 

10,747

 

 

10,721

 

 

13,673

 

 

12,741

 

Depreciation, amortization and accretion

 

2,146

 

 

2,250

 

 

2,305

 

 

2,335

 

 

2,359

 

 

2,601

 

 

2,785

 

 

2,669

 

Goodwill impairment

 

 

 

8,849

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

$

41,375

 

 

$

51,787

 

 

$

42,145

 

 

$

41,517

 

 

$

40,649

 

 

$

43,107

 

 

$

44,036

 

 

$

42,974

 

Capital expenditures

 

$

1,063

 

 

$

679

 

 

$

1,378

 

 

$

1,495

 

 

$

1,287

 

 

$

830

 

 

$

1,630

 

 

$

2,299

 

(a) Slight variations in totals are due to rounding.

(b) An adjustment of $771 to cost of sales, identified in the fourth quarter of 2018, has been reflected in this table as an increase to cost of sales of $166, $196 and $359 in the first, second and third quarters of 2018, respectively. Total cost of revenue and operating expenses have been adjusted accordingly to reflect these changes.

SPOK HOLDINGS, INC.

UNITS IN SERVICE ACTIVITY, MARKET SEGMENT, CHURN

AND AVERAGE REVENUE PER UNIT (ARPU) (a)

(Unaudited and in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

3/31/2020

 

12/31/2019

 

9/30/2019

 

6/30/2019

 

3/31/2019

 

12/31/2018

 

9/30/2018

 

6/30/2018

Paging units in service

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning units in service (000’s)

 

938

 

 

955

 

 

977

 

 

982

 

 

992

 

 

999

 

 

1,024

 

 

1,030

 

Gross placements

 

24

 

 

22

 

 

28

 

 

35

 

 

27

 

 

30

 

 

31

 

 

35

 

Gross disconnects

 

(36

)

 

(39

)

 

(50

)

 

(40

)

 

(37

)

 

(37

)

 

(56

)

 

(41

)

Net change

 

(12

)

 

(17

)

 

(22

)

 

(5

)

 

(10

)

 

(7

)

 

(25

)

 

(6

)

Ending units in service

 

926

 

 

938

 

 

955

 

 

977

 

 

982

 

 

992

 

 

999

 

 

1,024

 

End of period units in service % of total (b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Healthcare

 

82.6

%

 

82.4

%

 

81.7

%

 

81.7

%

 

81.6

%

 

81.4

%

 

81.7

%

 

81.5

%

Government

 

5.4

%

 

5.4

%

 

5.5

%

 

5.6

%

 

5.8

%

 

5.8

%

 

5.8

%

 

5.7

%

Large enterprise

 

5.5

%

 

5.5

%

 

6.1

%

 

5.9

%

 

5.9

%

 

5.9

%

 

6.0

%

 

6.0

%

Other(b)

 

6.5

%

 

6.6

%

 

6.7

%

 

6.8

%

 

6.7

%

 

6.9

%

 

6.5

%

 

6.8

%

Total

 

100.0

%

 

100.0

%

 

100.0

%

 

100.0

%

 

100.0

%

 

100.0

%

 

100.0

%

 

100.0

%

Account size ending units in service (000’s)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1 to 100 units

 

67

 

 

69

 

 

72

 

 

74

 

 

77

 

 

78

 

 

81

 

 

85

 

101 to 1,000 units

 

171

 

 

173

 

 

175

 

 

179

 

 

186

 

 

190

 

 

192

 

 

197

 

>1,000 units

 

688

 

 

696

 

 

708

 

 

724

 

 

719

 

 

724

 

 

726

 

 

742

 

Total

 

926

 

 

938

 

 

955

 

 

977

 

 

982

 

 

992

 

 

999

 

 

1,024

 

Account size net loss rate(c)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1 to 100 units

 

(3.0

)%

 

(3.8

)%

 

(2.1

)%

 

(3.2

)%

 

(2.3

)%

 

(1.7

)%

 

(4.3

)%

 

(3.8

)%

101 to 1,000 units

 

(1.0

)%

 

(1.0

)%

 

(2.4

)%

 

(3.9

)%

 

(2.3

)%

 

%

 

(2.7

)%

 

(0.6

)%

>1,000 units

 

(1.2

)%

 

(1.8

)%

 

(2.2

)%

 

0.7

%

 

(1.1

)%

 

(0.1

)%

 

(2.2

)%

 

(0.2

)%

Total

 

(1.3

)%

 

(1.8

)%

 

(2.2

)%

 

(0.5

)%

 

(1.1

)%

 

(0.2

)%

 

(2.5

)%

 

(0.6

)%

Account size ARPU

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1 to 100 units

 

$

12.01

 

 

$

11.99

 

 

$

11.84

 

 

$

12.00

 

 

$

11.90

 

 

$

11.61

 

 

$

11.33

 

 

$

12.04

 

101 to 1,000 units

 

8.34

 

 

8.31

 

 

8.41

 

 

8.47

 

 

8.35

 

 

8.28

 

 

8.19

 

 

8.34

 

>1,000 units

 

6.59

 

 

6.62

 

 

6.59

 

 

6.47

 

 

6.57

 

 

6.69

 

 

6.74

 

 

6.62

 

Total

 

$

7.31

 

 

$

7.33

 

 

$

7.32

 

 

$

7.26

 

 

$

7.32

 

 

$

7.36

 

 

$

7.40

 

 

$

7.41

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a) Slight variations in totals are due to rounding.

(b) Other includes hospitality, resort and indirect units

(c) Net loss rate is net current period placements and disconnected units in service divided by prior period ending units in service.

SPOK HOLDINGS, INC.

RECONCILIATION FROM NET (LOSS) INCOME TO EBITDA (a)

(Unaudited and in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

3/31/2020

 

12/31/2019

 

9/30/2019

 

6/30/2019

 

3/31/2019

 

12/31/2018

 

9/30/2018

 

6/30/2018

Reconciliation of net (loss) income to EBITDA (b):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income (c)

 

$

(4,539

)

 

$

(9,511

)

 

$

(1,326

)

 

$

(670

)

 

$

742

 

 

$

189

 

 

$

(840

)

 

$

(1,172

)

Plus (less): (benefit from) provision for income taxes

 

657

 

 

(2,172

)

 

(804

)

 

(268

)

 

586

 

 

(5

)

 

(446

)

 

(730

)

Plus (less): Other expense (income)

 

137

 

 

(206

)

 

(163

)

 

(602

)

 

236

 

 

593

 

 

110

 

 

(102

)

Less: Interest income

 

(363

)

 

(350

)

 

(399

)

 

(452

)

 

(449

)

 

(628

)

 

(384

)

 

(342

)

Operating (loss) income

 

(4,108

)

 

(12,239

)

 

(2,692

)

 

(1,992

)

 

1,115

 

 

149

 

 

(1,560

)

 

(2,346

)

Plus: depreciation, amortization and accretion

 

2,146

 

 

2,250

 

 

2,305

 

 

2,335

 

 

2,359

 

 

2,601

 

 

2,785

 

 

2,669

 

EBITDA (as defined by the Company)

 

$

(1,962

)

 

$

(9,989

)

 

$

(387

)

 

$

343

 

 

$

3,474

 

 

$

2,750

 

 

$

1,225

 

 

$

323

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RECONCILIATION FROM OPERATING EXPENSES TO ADJUSTED OPERATING EXPENSES (a)(d)

 

 

 

 

 

 

 

For the three months ended

 

 

 

3/31/2020

 

12/31/2019

 

9/30/2019

 

6/30/2019

 

3/31/2019

 

12/31/2018

 

9/30/2018

 

6/30/2018

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

$

41,375

 

 

$

51,787

 

 

$

42,145

 

 

$

41,517

 

 

$

40,649

 

 

$

43,107

 

 

$

44,036

 

 

$

42,974

 

 

Less: depreciation, amortization and accretion

 

2,146

 

 

2,250

 

 

2,305

 

 

2,335

 

 

2,359

 

 

2,601

 

 

2,785

 

 

2,669

 

 

Less: goodwill impairment

 

$

 

 

$

8,849

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

Add: capitalized software costs

 

$

1,705

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

Adjusted operating expenses

 

$

40,934

 

 

$

40,688

 

 

$

39,840

 

 

$

39,182

 

 

$

38,290

 

 

$

40,506

 

 

$

41,251

 

 

$

40,305

 

 

(a) Slight variations in totals are due to rounding.

(b) EBITDA or earnings before interest, taxes, depreciation, amortization and accretion is a non-GAAP measure and is presented for analytical purposes only. Management and the Board of Directors rely on EBITDA for purposes of determining the Company’s capital allocation policies. EBITDA is also the starting point for the calculation of operating cash flow for purposes of determining whether management has achieved certain performance objectives in the Company’s short-term and long-term incentive plans.

(c) An adjustment to cost of revenue identified in the fourth quarter of 2018 of $771 has been reflected in this table as a reduction of Net (loss) income of $166, $196, $359, and $771 in the first, second, third, and fourth quarters respectively.

(d) Adjusted operating expenses is a non-GAAP measure and is presented for analytical purposes only. Management and the Board of Directors rely on adjusted operating expenses for purposes of assessing our core operating results based on expenses incurred within a period that directly drive operating income in that period. Management adjusts for certain items because we do not regard these costs as reflective of normal costs related to the ongoing operation of the business in the ordinary course. In general, these items possess one or more of the following characteristics; non-cash expenses, factors outside of our control, items that are non-operational in nature, and unusual items not expected to occur in the normal course of business.